Buying your first home in South Africa: bonds, deposits and costs
Buying a home is the biggest purchase most people make. How much you can afford, how home loans work, the extra costs and how the prime rate affects you.
Buying your first home is exciting, but it is also the largest financial commitment most people make. Understanding how home loans work and what the full costs are helps you buy with confidence rather than stretching yourself too far. This guide explains how much you can afford, how bond interest rates work, the deposit, the costs on top of the price, and what to check before you sign when buying your first home in South Africa.
How much home can you afford?
Banks generally limit your home loan repayment to around 30% of your gross monthly income, and they also look at your other debts, living expenses and credit record. Before house-hunting, get a pre-approval from a bank or bond originator, which tells you roughly how much you can borrow and makes your offers more credible. A healthy credit record improves both your chances and the rate you are offered.
For example, with a gross income of R40,000 a month, a bank might allow a repayment of about R12,000. Over 20 years at 11%, that supports a loan of roughly R1.16 million. Your own budget, not just the bank's limit, should decide how much you borrow.
Interest rates and the prime rate
Most home loans in South Africa have a variable interest rate linked to the prime lending rate, which moves with the Reserve Bank's repo rate. Your rate might be prime, or a margin above or below it depending on your risk profile and deposit. When the repo rate rises, your repayment rises too, so leave room in your budget for increases. Our loan calculator shows the effect of different rates and terms, and the South Africa money page tracks the current repo rate.
The deposit
Some banks offer 100% home loans to qualifying buyers, but a deposit of 10% or more usually gets you a better interest rate and lower repayments, and reduces the risk of owing more than the property is worth. Saving a deposit in a tax-free savings account or with a disciplined stokvel can help. Qualifying lower- and middle-income buyers may also be eligible for the government's First Home Finance subsidy, which can be used towards a deposit.
The costs on top of the price
Budget for transfer costs, which include the conveyancer's fees and transfer duty paid to SARS on properties above a threshold, and bond registration costs for the attorney who registers your home loan. Buying a new property directly from a developer may be subject to VAT instead of transfer duty, usually included in the price. Then add moving costs, insurance, municipal rates, and levies if you buy in a sectional-title complex. Banks and conveyancers publish calculators for transfer and bond costs.
Ongoing costs of owning a home
Owning a home brings costs that renters may not have faced: building insurance, which banks require, municipal rates and services, maintenance and repairs, and, in sectional title, monthly levies and occasional special levies. Set aside a maintenance fund each month, as roofs, geysers and plumbing eventually need attention.
Before you sign the offer to purchase
An offer to purchase is a binding contract once accepted, so read it carefully. Make it subject to your bond being approved, check what is included in the sale, and ask about defects. Visit the area at different times, check the levies and the body corporate's finances for sectional title, and keep an emergency fund after the purchase for repairs.
Paying off your bond faster
Paying even a little extra into your bond each month reduces the interest you pay and shortens the loan term. Many bonds allow you to access extra payments later if needed, which can act as a buffer. Check your bank's rules before relying on this.
Frequently asked questions
How much deposit do I need to buy a house in South Africa?
Some banks offer 100% loans, but a deposit of 10% or more usually gets a better rate.
What costs are there besides the purchase price?
Transfer costs, including transfer duty above a threshold, bond registration costs, moving costs, insurance, rates and levies.
How much of my income can go to a bond repayment?
Banks generally limit repayments to around 30% of gross monthly income.
Sources
This article is general information, not financial advice.